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Government May Prod IDBI Bank To Raise Funds Via Public Offer

The government will likely push IDBI BankBSE 4.41 % to raise resources through a public offer as part of a plan to stabilise the state-run lender before it pursues any strategic sale of equity. The bank will also hold a strategy meeting this month to firm up a turnaround plan.

“Under the new leadership, the bank is expected to raise money from the market. It is likely to be through a follow-on public offer (FPO), or a qualified institution placement (QIP),” said a finance ministry official.

The government would wait for a turnaround before taking a call on any strategic sale of equity in the lender, of which the state owns 74%, he said. The bank is also expected to present a turnaround plan to the ministry in the next few weeks, detailing steps it intends to take to handle the problem of bad loans, and expand advances. The bank has shareholder approval to raise Rs 8,000 crore of capital.

“At present, the stock price of the bank is not reflecting its true valuation. The bank has also embarked on an exercise to get its real estate valued,” the official quoted said, adding that the bank will also divest its non-core assets to boost its capital. Last fiscal, the government allocated Rs 1,900 crore toward capital infusion in IDBI as it changed the bank’s MD &CEO, and appointed Mukesh Jain from Indian Bank to the top post.

“Since IDBI was mostly lending in the infrastructure space, it is almost on all major joint lender forums. The new management has been asked to focus on that area as well, and try resolving some of the stressed assets,” said another government official aware of the deliberations. The government, which has allocated Rs 10,000 crore towards capital infusion this fiscal, will be constrained in supporting all banks, and would bail out a lender as a last resort.

“We expect an increase in the bad loans of the bank as it is cleaning its books. But IDBI Bank is expected to improve from here,” said a senior executive with the bank. There will be added pressure under the revised prompt corrective action (PCA) framework of the Reserve Bank of India, wherein the banking regulator can push lenders for consolidation in case they don’t meet the norms.

Rating agency ICRABSE 0.03 % has said that Indian Overseas BankBSE 4.13 % is likely to be the only bank that needs to take corrective actions, which includes restriction on expansion, management compensation, and capital infusion.